AA Commit, Market Timer, Hybrid?

[DawgMan]

So, I seem to read some ongoing variations of market strategy, particularly in periods of bigger market swings (up or down) that sometimes contradict what the investor says is their real strategy. In other words, I read that a dedicated 60/40 AA advocate is "sitting on the sidelines waiting for a dip" to buy. For the AA purest, is this not market timing?? Shouldn't they have already allocated accordingly? I suppose a true dedicated AA strategist would justify this by saying he rebalances once a year so over time he hits his AA?? Or, should we all be honest and say there is a little bit of market timing in all of us? No critique here, just an observation. Personally, I fall in this camp and have a loosy goosey AA plan that says 70/30 overall but ranges from 65/15/15 - 70/30 at any point in time based on my Spidey sense of the market (I.e. Market too hot, hold more cash, wait for buying dips, not happy with bond returns) aka market timing.

Sooooo, markets taking a little break, you guys holding cash looking for a buy dip... did you buy yesterday? What's your buy sign... X%, X1000 point drop? I know your not a market timer

 

[pb4uski]

I'm more of an "opportunistic rebalancer" than one of those "dirty market timers". I normally rebalance annually toward the end of the year in concert with my year end tax planning... I replenish cash (which results in capital gains), do my Roth conversion, and then complete rebalancing.

However, if the market seems low or high I may rebalance during the year. For example, when the Brexit caused a sharp drop in prices that I viewed as an overreaction I used the opportunity to rebalance. With the Trump rally I have also rebalanced a couple times, locking in some gains.

To be honest, I'm not sure it makes a big difference, but I do it for fun.

 

[DawgMan]

I'm more of an opportunistic rebalancer. I normally rebalance annually toward the end of the year in concert with my year end tax planning... I replenish cash (which results in capital gains), do my Roth conversion, and then complete rebalancing.

I like it, "opportunistic rebalanced"
However, if the market seems low or high I may rebalance during the year. For example, when the Brexit caused a sharp drop in prices that I viewed as an overreaction I used the opportunity to rebalance. With the Trump rally I have also rebalanced a couple times, locking in some gains. So what constitutes a rebalancing event? Yesterday?

To be honest, I'm not sure it makes a big difference, but I do it for fun.

Not sure I did the whole quote thing right...

 

[pb4uski]

Not yesterday, perhaps a few yesterdays strung together. For me, it is more a "feeling" and time. If a few yesterdays happen and I am busy with other things it might not happen... if I have the time then I rebalance. No particular magic.

 

[DawgMan]

Not yesterday, perhaps a few yesterdays strung together. For me, it is more a "feeling" and time. If a few yesterdays happen and I am busy with other things it might not happen... if I have the time then I rebalance. No particular magic.

Exactly, rely on your Spidey sense as it leads to the Promised Land!

 

[DrRoy]

From a past of trying to beat the market, I am now AA commit.

 

[exnavynuke]

I rebalance my 401k plan quarterly and stick with my AA by doing that and DCAing my bi-weekly contributions to my brokerage accounts into the funds which keep my AA at that time. So I guess that puts me in the "AA Commit" category.

 

[DawgMan]

From a past of trying to beat the market, I am now AA commit.

So no cash hoarding based on any "gut feel" of the market? If last week (or say when market was at a high) that was your regularly scheduled re-balance day, you would just "plug and play" your reallocation and then go cut the grass?

 

[DawgMan]

I rebalance my 401k plan quarterly and stick with my AA by doing that and DCAing my bi-weekly contributions to my brokerage accounts into the funds which keep my AA at that time. So I guess that puts me in the "AA Commit" category.

I suppose a pre-planned DCA approach is the happy medium... you probably "feel good" on the dip days you bought... maybe cringe a little the day you bought on a high?

 

[Dawg52]

There are many different types here. Some hold to a strict rebalance once a year. Some tweak it like pb4uski. And there are some who are true market timers, but not as many here.....I don't think. I probably fall into the hybrid category. I have some cash that has built up that I've been waiting on a correction to invest. Nothing significant tho. As far as the trigger, would like to see a 10% drop before making a purchase.

 

[gerntz]

So, I seem to read some ongoing variations of market strategy, particularly in periods of bigger market swings (up or down) that sometimes contradict what the investor says is their real strategy. In other words, I read that a dedicated 60/40 AA advocate is "sitting on the sidelines waiting for a dip" to buy. For the AA purest, is this not market timing?? Shouldn't they have already allocated accordingly? I suppose a true dedicated AA strategist would justify this by saying he rebalances once a year so over time he hits his AA?? Or, should we all be honest and say there is a little bit of market timing in all of us?

Seems to me that if your rebalance plan is to do so when your allocation gets a certain % out of wack, then you are timing the market. I.e., no matter when you buy/sell stocks/bonds, it's timing. Now if you buy/sell disregarding your AA, then you're a true timer imo. Me, I rarely rebalance, maybe once every couple of years.

 

[easysurfer]

I'm a strict rebalancer once a year.

The only times I might sell outside of rebalancing is to get some money for the year's expenses and get the capital gains income right for ACA subsidies.

Other than that, rebalance in Jan and just observe and find something else to do when the market gets crazy.

 

[Fedup]

My AA is fluid, minimum 25/75, max 70/30. But I must admit sometimes Vanguard shows I'm 90% in cash because I write cash covered puts. But I was brave enough to BTFD, bought some IWN yesterday. I know more pain to come.

 

[LOL!]

Bonds were up 0.5% yesterday when I sold them to buy equities. That's more than cash has made year-to-date. And bonds were up 2.3% so far this year through yesterday. There is no way I would be sitting in cash waiting for a dip to do market timing. And I do market timing every now and then.

 

[FUEGO]

In general I have a fixed asset allocation. I rebalance to that asset allocation occasionally when I notice things get out of balance or if I'm moving money from one spot to another (Roth IRA Conversion Ladder).

That's how I've done things for the last 10 years or so (when I first implemented my "permanent" asset allocation). That original asset allocation had no bond component to it.

Fast forward to 2017. I've been retired a few years and my wife has been retired just over a year. I watch the markets rise up, up, and up some more. So I decide taking some profits might be a good defensive move to lock in some profits. So I've been slowly moving $ into bonds the past several months (starting in Jan or Feb I think). Mostly $25,000 to $50,000 chunks of $. I'm up to $90,000 in bonds now (plus $30k in money market/cash). That's about 3-4 years' living expenses.

I haven't formally modified my 100% stock asset allocation. I regard the bond position as spending money should the market take a nosedive suddenly. In practice, I'm roughly 93% stocks and 7% bonds/cash. I wouldn't mind keeping the bonds and cash at those levels long term or even bumping it up to 10%+ if the market continues the current upward trajectory. If the market is a few percent higher in a few months I'll probably transfer another $25,000 from stocks to bonds and keep doing so occasionally.

I never formalized this plan to shift into bonds when the market is objectively "highly valued" but knew I wanted to do it. Back in the pits of 2008-2009 Great Recession, I remember thinking "gosh it would be nice to have a small sliver of bonds to live off of for a while if this kind of correction happens again".

So I'm not sure what that makes me? Dirty market timer? Confused about asset allocation? Opportunist? Benjamin Graham-style value investor shifting asset allocation based on valuation of the market?

All I know is ******** still gives me 100% chance of success with a $2M+ portfolio at age 70 under the worst case scenario with a median portfolio value of $7 million. And that's without the inclusion of the current side hustle income that pays most of our bills.

 

[FIREd]

I used to get all fancy with regards to AA rebalancing based on factors such as valuations, interest rates, etc.... I have lost interest in such fine tuning. My AA is now fixed at 50/50, rebalancing only when my stock allocation falls below 45% or rises above 55%.

 

[OldShooter]

I know of no serious student of the markets who believes that market timing works. This includes Dr. Markowitz, John Bogle, Kenneth French, Eugene Fama, Charles Ellis, Burton Malkiel, and Nassim Taleb. (Note: Two Nobel laureates in that list.)

Bogle: "The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently."

Ellis: "Short-term market timing is a loser's game. None of us know what tomorrow holds ..."

Malkiel: “I have never known anyone who could consistently time the market. And in fact I’ve never known anyone who knows anyone, who was able to consistently time the market.”

Fama: "Timing has never worked. That’s just luck. Everyone’s saying that they would have been better off getting out of the market before this happened, but that’s 20/20 hindsight"

... and so on.

Trying to time is great fun, but on average it is unproductive. Reading anecdotes and posts describing people's success can be highly misleading, because those who fail are not prone to boast about it. Reading this stuff is to read a highly skewed sample.

 

[LOL!]

Reading anecdotes and posts describing people's success can be highly misleading, because those who fail are not prone to boast about it. Reading this stuff is to read a highly skewed sample.

I agree. That's one reason why LOL!'s Market Timing Newsletter posts trades as they happen. The forum software gives an automatic time-stamp so that readers can check on the results themselves. Readers get to see all the failures which are just as instructive as the non-failures.

 

[OldShooter]

I agree. That's one reason why LOL!'s Market Timing Newsletter posts trades as they happen. The forum software gives an automatic time-stamp so that readers can check on the results themselves. Readers get to see all the failures which are just as instructive as the non-failures.

I looked at that thread but confess I am too lazy to slog through all of it. Do you ever post annual % returns from all timing trades, net of costs?

 

[LOL!]

I looked at that thread but confess I am too lazy to slog through all of it. Do you ever post annual % returns from all timing trades, net of costs?

I use no commission brokers and invest tax-efficiently, so there are no costs.

No, I don't post annual % returns because they are meaningless without an asset allocation or benchmark to compare to. See this series of 3 posts:http://www.early-retirement.org/forums/f44/lol-s-market-timing-newsletter-57042-65.html#post1787189

Even folks who do not do market timing should compare their results to a benchmark because they could have behaviors that are market timing without even knowing it.

 

[OldShooter]

... No, I don't post annual % returns because they are meaningless without an asset allocation or benchmark to compare to. ...

True enough. But if you are not looking at your annual % equity-only returns how do you know that you are successful compared to other less labor-intensive approaches?

What I would ask is how your equity return compared, first, to the Russell 3000 and the ACWI. Or to funds that track these.

I would also compare it to a "couch potato" benchmark that I maintain -- $100K split 65% US Total Market and 35% International Total Market. I started this one a couple of years ago and have been using it without rebalancing to benchmark the portfolio (equity-only) returns that a Morgan Stanley "Wealth Manager" has been producing for a nonprofit that I have been associated with. IOW, an easy-to-manage portfolio alternative to the MS manager. Of course the couch potato (CP) portfolio has blown the actively managed portfolio away. CP return ITD is almost double what the twits at MS have delivered.

 

[LOL!]

Labor intensive? What do you mean? There is no labor involved. Do you think I am day trading every day or something?

Anyways, my links show the story. I exceed my benchmarks which is all that matters to me. It doesn't matter what I tell you because you will then ask for proof. Then I will say look at my Market Timing Newsletter. Then you will say, I am too lazy. And that becomes the end of the discussion.

 

[OldShooter]

... end of the discussion.

Agreed. All I needed to know is that you don't publish your total returns.

 

[Lsbcal]

I rebalance back to 60/40 when the portfolio grows to 61/59. If it drops I let it ride. If we get towards an inverted yield curve, I will go to 40/60. There are a few other economic factors in the mix too. If there is full inversion with equity weakness, I might exit equities.

Have basically followed this approach since 2009. So far this is indistinguishable from buy/hold.

 

[FUEGO]

I rebalance back to 60/40 when the portfolio grows to 61/59. If it drops I let it ride. If we get towards an inverted yield curve, I will go to 40/60. There are a few other economic factors in the mix too. If there is full inversion with equity weakness, I might exit equities.

Have basically followed this approach since 2009. So far this is indistinguishable from buy/hold.

What's that saying? "An inverted yield curve predicted 18 of the last 7 recessions?"